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America's Energy Bust

Unlike Texas and N.D, Alaska's oil production peaked in 1988 and continues to decline. An upcoming referendum on oil taxes threatens to reduce energy investment. The North Slope pipeline is carrying such low oil volumes to endanger its safety.

The economic effect of declining state oil production, "which has dropped 75% since its peak in the 1980s," has been widespread, resulting in higher unemployment, reduced gross domestic product, and out-migration of population, write Cassandra Sweet and Jim Carlton of The Wall Street Journal.

Until the wide scale application of hydraulic fracturing and horizontal drilling changed America's energy production paradigm, The Last Frontier State remained safely behind Texas as the nation's second largest oil producer. Since then, Alaska has dropped to fourth place, behind North Dakota and California, according to the U.S. Energy Information Administration (EIA).

Last fiscal year's daily production averaged "more than 529,000 barrels a day," according to the Alaska Dispatch News. "By 2023, North Slope production will fall to 315,000 barrels a day," writesReuter's Steve Quinn. By contrast, North Dakota's daily oil production surpassed one million bpd in April.

An unlikely person may in part be responsible for the declining production, former Governor Sarah Palin, who increased taxes on energy companies in 2007. The tax cuts were reinstated by "Gov. Sean Parnell and state lawmakers last year to encourage more drilling," write Sweet and Carlton.

Supporters of the tax hike say Alaska needs more revenues to survive the boom-and-bust cycles of oil production; the energy industry has hinted it will pull back on exploration if the referendum succeeds.

"The amount of oil produced on the North Slope is falling every year. The pipeline, part empty, is in danger of seizing up," they add.

Correspondent's note: Subscriber-only content to The Wall Street Journal article may be available to non-subscribers for up to seven days after August 12.